Competition heats up for Tesla's gigafactory

PALO ALTO -- Tesla Motors' plan to build a massive battery manufacturing plant -- its "Gigafactory" -- has set off fierce competition for the country's biggest economic development prize in years. As the five states under consideration, including California, intensify efforts to land the factory and its 6,500 jobs, speculation about who holds the lead is rampant and changes by the day.

Tesla acknowledged last month it already has broken ground on a "potential" site in Reno, Nevada, where crews have excavated earth for construction. But while Tesla has paid for the work in Reno, the company says it continues to evaluate sites in Arizona, California, New Mexico and Texas.

"The wild card in this sweepstakes are the incentive packages being crafted behind closed doors," said John Boyd of The Boyd Co., a New Jersey-based site-selection firm. "I think Reno is the front-runner, but Texas is very much in the hunt, and I'd put California third. But at this point, groundbreaking has not taken place in any of the other strong candidate sites like Tucson, San Antonio or Dallas."

For the competing states, the Gigafactory is enticing because manufacturing jobs tend to have better wages and benefits than service sector jobs, such as retail and restaurants. For Tesla, the giant factory is key to reducing battery costs for its upcoming Gen 3 electric vehicle, which it hopes to sell for roughly $35,000. It wants a 500- to 1,000-acre site to accommodate up to 10 million square feet of construction.

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In California, efforts to land the Gigafactory are led by Mike Rossi, Gov. Jerry Brown's senior adviser for jobs and business development, although the governor told this newspaper that he's spoken to Tesla CEO Elon Musk himself once on the phone. California, originally not on the list of states being considered, has been viewed as an underdog due to its high taxes and stringent environmental laws. Rossi declined to comment for this story.

State senators Ted Gaines, R-Roseville, and Darrell Steinberg, D-Sacramento, have co-authored a proposed Tesla incentive bill, but details on what it will offer are not final. Several potential sites in California, from the shuttered Mather Air Force Base in Rancho Cordova to the former Concord Naval Weapons Station, have entered the rumor mill as possible locations, but Tesla has not commented on any specific sites. Lawmakers have until Aug. 28 to get any incentive package passed.

"At one point Tesla was looking at 31 sites statewide," Gaines, who recently showed up at Tesla's Palo Alto headquarters with a symbolic golden shovel, said in an interview. "I'd love to see it in the Sacramento area."

Texas Gov. Rick Perry has earned a reputation as an economic wunderkind for attracting businesses to the Lone Star State through the Texas Enterprise Fund, which was created by the Legislature at his request more than a decade ago and has become the largest "deal-closing" fund in the nation. Texas offered $2.3 million to help bring SpaceX's commercial rocket launch facility to the Brownsville area; SpaceX is also run by Musk.

But Perry is also a skeptic about whether climate change is man-made, and Texas currently bans direct auto sales. Those could be big negatives for Tesla, which is on a mission to reduce carbon emissions and sells its electric cars directly to consumers rather than through dealerships.

As it evaluates various sites, Tesla has stressed that speed is of the essence.

"The sooner this can be done, the sooner we can reduce carbon output and reduce the probability of a catastrophe," Musk said at Tesla's most recent earnings call with analysts. "And in the absence of Gigafactory, this progress will be much slower."

Tesla has said the final site for the "first" Gigafactory -- it may build more than one -- will be decided within months. It also has said the winning state should be prepared to cover roughly 10 percent of the $4 billion to $5 billion cost.

"Tesla is not going to ink up for a deal that is unfair to the state or unfair to Tesla," Musk said. "We want to make sure it's compelling for all parties."

Nevada's no-tax reputation -- it has no corporate income tax, personal income tax or inventory tax -- has attracted employers but also limits the state's spending power. Its general fund was just $3.2 billion for the 2013 fiscal year, while California's was $102 billion.

"The challenge for Nevada is coming up with the money. It's like getting blood from a stone," said Boyd. "But that is only part of the story here. The site in northern Nevada has the unique potential to generate power from three green sources: wind, solar and geothermal -- a very unique set of circumstances, and one which speaks directly to Tesla's raison d'être."

Several factors -- including corporate taxes, cost of land, a skilled workforce and ease of permitting -- are key in the selection process. So is the cost of electricity and access to transmission lines. Some states offer preferential electricity pricing as part of incentive packages, but investor-owned utilities such as PG&E or Southern California Edison in California would have to go through state regulators to get such pricing approved. Municipal utilities or cooperatives tend to have more control over their rates.

"There's no question that Tesla's Gigafactory will be on an industrial rate," said Haresh Kamath, an energy storage expert at EPRI, the Electric Power Research Institute. "But something at this scale could be directly connected to transmission lines. This factory would draw a lot of power, at a fairly high voltage."